How the most exclusive club in the world destroyed the globaleconomy - China Alloy Steel Seamless T

He once told a friend that he like to travel throughwalls. Emile Moreauwas the governor of the Banque de France. He wasknown to hoard gold obsessively and like many Frenchmen, wasexceptionally proud of his cultural heritage. The fourth, HjalmarSchacht, was president of Germany'sReichsbank and had earned herostatus among his countrymen, and among some others as well, forquashing the hyperinflation that wrecked the post-WWI Germaneconomy.

These four men, their lives and careers, are discussed at greatlength in Liaquat Ahamed 's 2009 book, "Lords of Finance: The Bankers Who Broke theWorld." All four central bankers were semi-mythologicalfigures, men considered larger than life; their remarks werefollowed by market players as if divine pronouncements. Theirclosed-door consultations were termed "the most exclusive clubin the world." Yet, these men were blinded by their hubris, vanity and theircomplete faith in economic orthodoxy of the day, the gold standard,and their legacies are ones of tremendous damage. Under the international gold standard system, all the currencies ofthe industrial countries had their value pegged to a set amount ofgold. By law, all currency holders could go to a bank at any timeand request to exchange currency for its gold equivalent. Whentimes turned tough, this resulted in serious gold shortages asgovernments' gold reserves dwindled and individuals lost faith incountry's ability to repay the gold value of its printed currencyon demand.

To shore up the gold reserves necessary to maintain theircurrencies' value in international trade, nations were forced torestrict the amount of gold-redeemable currency in circulation. Governments achieved this by restricting the availability of bankcredit and hiking up interest rates to reduce the supply of money.But they did this just as their economies were bogging down in theglobal depression. Their economies were crying out for low interestrates to drive consumer demand and pave the way to recovery. Yet the world obediently cringed before these four demigods becauseof their past successes and "crucified mankind upon a cross ofgold," as the American statesman William Jennings Bryan put itin his famous presidential campaign speech against the goldstandard.

Nowadays these central bankers are remembered and less for theirtriumphs prior to 1929 and more for the absolute economic mess theyleft behind. They created economic havoc so extreme that it spurredglobe-spanning political turmoil, which in turn had to be cleanedup by such leaders as Franklin Delano Roosevelt and in markedcontrast, Adolf Hitler. The central banker who adored Ayn Rand Fast-forward to 2006, when Alan Greenspan retired after nearly 20years on the job as chairman of the U.S. Federal Reserve Bank.

Greenspan - "the maestro" as he was called by veteranWashington journalist Bob Woodward in his 2000 biography of the man- led the American economy through five terms at the Fed and twodecades of unprecedented growth, which were punctuated by only tworecessions. His long tenure in office stands in stark contrast tothe four men who held the position before him during the 18 yearspreceding his first appointment. After his retirement, Greenspan,a known acolyte of novelist and libertarian philosopher Ayn Rand,was termed "the best central banker in history." He didn't get to keep that soubriquet for long. Two years later the U.S. housing market tanked, as didmortgage-backed securities, driving the global economy towards thebrink.

The collapse of the giant investment bank Lehman Brothersmerely marked a turning point. The real culprit was the regime oflow interest instituted by Greenspan throughout his tenure: It isthis policy that has been held responsible for creating the housingbubble. "I made a mistake," Greenspan admitted during aCongressional hearing in Oct. 2008, saying that his adherence tofree market fundamentalism had falsely led him to believe thatmarkets could regulate themselves better than government rules orwatchdogs.

"I had been going for 40 years with considerableevidence that it was working very well." Greenspan's successor at the Federal Reserve, Ben Bernanke, had toact quickly in 2008 to save both the U.S. and world economy. Hestarted with slashing the Federal Reserve interest rate to zero,and pumping in vast sums of government capital into the markets tostabilize the financial system. This process has become known as aquantitative easing. As his guide, Bernanke studied the catastrophic response of theprevious generation's central bankers during the Great Depression.In 2009 Time Magazine named him Man of the Year for 2009 for hisearly success in preventing a complete meltdown in U.S.

financialmarkets. Also, despite its generally conservative image, theEuropean Central Bank also implemented drastic measures during thefinancial crisis that, according to economist Satyajit Das, made itmore "leveraged than Lehman Brothers." Now, despite Herculean efforts in the U.S. and Europe to promoteeconomic recovery, they are drowning in debt and have no clue howto repay. Worse, after pouring trillions of dollars into the global financialsystem both the U.S. and European economies continue to stall atevery chance for recovery as their central bankers have gonethrough almost the entire arsenal of policies at their disposal.

Got any policies left? No? During the past few months, just like in the 1930s, the world hasbecome disillusioned with the central banks. Many critics havebegun to say loud and clear that perhaps these financial pillarsmay have actually caused more harm than good. To many it seems as if the massive bailouts and emergency loans tobanks they granted benefited mainly the bankers themselves, andcentral bank employees who sought jobs at major financial concernsin the private sector. But the public at large has been left out inthe cold.

Once interest rates had fallen to depths from which they couldn'tdescend any more, the central banks became impotent. The onlypolicy remedy left was to increase the money supply by running themints overtime, though they know the terrific risks they'rerunning. The only other palatable solution is to issue sternwarnings to the financial markets. In January Mohamed el-Erian, CEO of the biggest mutual-fundmanagement company in the world, Pimco, wrote an opinion piece inthe Guardian that savaged the central banks.

"More than three years after the global financial crisis , the world still has a nasty plumbing problem,"Erian wrote."Credit pipes remain clogged." But the central banks'ability to clear the pipelines was weakening, which in itself posedyet another set of risks for western economies blocked by toolittle growth, too much unemployment, deepening inequality, anddebt in all the wrong places, he summed up. After throwing billions of dollars at the problem without anysignificant effect "the central banks have beenunconventional bridges to nowhere," he concluded. Last month Erian continued his assault on the central banks in aspeech at the St. Louis Federal Reserve. He claimed the centralbanks were incapable of repairing the global economy because thekey issues facing it are not monetary in nature and, therefore,cannot be solved with simple interest rate adjustments.

The problems facing the global economy today are much more complex,Erian explained. They have to do with problems in education,employee training and economic realignment from top to bottom things for which the central banks have no relevant expertise. The steps being considered today by the Fed, the European CentralBank and the Bank of England more government intervention in themarkets and more quantitative easing are unsustainable, he says.They'll just exacerbate the damage already done to the globalfinancial system, markets and the pension funds that are investedin them. "In the last three-plus years, central banks have had littlechoice but to do the unsustainable in order to sustain theunsustainable until others do the sustainable to restoresustainability! " Erian told listeners.

Despite setting out on a fool's errand, Erian noted, the centralbanks feel they must do something to roll back the notion that theyare ineffectual in combating the crisis. He used his speech at theSt. Louis Fed as an opportunity to call upon central banks to backaway from the spotlight and give up their paramount position ineconomic policymaking to let other government agencies play a part. A convenient scapegoat Withering criticism of central banks is nothing new by historicalstandards. There is no more convenient political scapegoat duringeconomic crisis.

Bernanke was on the receiving end of quite a few harsh words whenhe decided to keep interest rates incredibly low from 2008 andpromised not to lower the rate further until 2014 at the earliest. The European Central Bank also received quite a lashing formaintaining its conservative monetary stance and ostensibly nottaking drastic enough steps to address the debt crisis in Europe.Yet the ECB had in fact implemented several key steps includingpouring 530 million euro into 800 different European banks inMarch. It even dealt with some sharp criticism from amongst its ownconstituent members. The Deutsche Bundesbank, the German centralbank, was not keen on bailing out faltering banks with new loansthat were unlikely to be repaid in full.

Beyond their role in economic affairs, central banks are oftenaccused of corruption and opacity. Their policy meetings are heldbehind closed doors and they do not reveal the amount of money theydisburse from the public purse to shore up failing concerns. Thepublic is left with the impression that a small coterie of bankersis managing the public's economic affairs for its own benefit; thenwhen economic crisis arises, the public must foot the bill for themisdeeds of the elite. The Federal Reserve Bank waged a quite vicious legal battle withBloomberg News last year after the financial news agency demandedthat the bank disclose how much money it loaned companies duringthe financial crisis bailout and who exactly received the money.Bloomberg prevailed and the relevant documents were disclosed tothe public. It turns out that over the course of the financial crisis and itsimmediate aftermath the U.S.

Federal Reserve lent $16 trillion tovarious banks and corporations in the U.S. and around the world. "There needs to be a comprehensive reform of the FederalReserve so that it serves the needs of working families and notjust those of CEOS on Wall Street," said Democratic SenatorBernie Sanders in a strongly-worded attack in October. Then there are apparent conflicts of interest. In Israel, the pastsupervisor of banks for the Bank of Israel, Rony Hizkiyahu, washired as chairman of the First International Bank of Israel's in amove that caused more than a few eyebrows to rise.

The U.S. as wellhas had numerous former Fed employees hired to plum jobs atcommercial banks or investment companies, trading on theirprivileged insider knowledge of the Fed and connections withpeople there that only a few can claim to possess. For example,Susan Bies had served on the Board of Governors for the FederalReserve System; the Fed's representative at the Financial StabilityForum an international group of central bankers and financeministers; and according to Forbes magazine "led themodernization process for the Basel agreements at the FederalReserve." She wound up joining the board of directors at theBank of America. Laurence Meyer was also a senior Fed bank employee before he left in 2002 toreturn to the firm he helped found, Macroeconomic Advisors, whichproduces economic forecasts. His firm in particular has employedover the years several other former senior Fed employees.

Some ofthese employees were active practitioners of the "revolvingdoor" philosophy and returned to jobs at the Fed after theirstint at the company before proceeding to return to the privatesector yet again. "The Federal Reserve has tried over the years to find means tostrengthen the transparency of its activities and I think it hasmade great progress," said Bernanke recently while addressingthe public release of some of the documents and financial figuresbelonging to the Reserve. "We have become a very transparentcentral bank." Bernanke's counter-attack reminded many in the U.S. that thelargest domestic banks that were bailed out during the financialcrisis because they were "too big to fail" are only largeand stronger today.

They are still free to do as they pleasewithout any serious regulation. Ron Paul: Fed's running a Ponzi scheme If the centrals banks are opaque by their very nature and have losttheir relevance due to squandering massive amount of capital onaid for financial institutions without achieving positive resultsfor anyone beyond their own employees, who needs them? Republican Congressman Ron Paul has called for the repeal of the USFederal Reserve Act for years now. He also published a book called"End the Fed" in 2009. An extreme libertarian, in his book Paul advocates repealing theFederal Reserve and blames it for the increasing inflation,unemployment and the explosion of U.S.

government debt during itsexistence. "If you and I were to print money like the Federal Reserve, wewould both be going to prison," Paul told comedian and DailyShow TV host Jon Stewart in a 2009 interview. "The FederalReserve is running a Ponzi scheme." In his book, Paul adds, "All across the U.S., people aregathering outside the offices of the Federal Reserve to protestagainst the power, secrecy and the behavior of the bank and callingfor its dissolution. Their goal isn't reform, it's arevolution." In place of a central banking system, Pauladvocates a return to the gold standard of old. Despite his unsuccessful run for the Republican presidentialnomination, Paul has become a respected figure on the right.

One ofhis many admirers, Texas resident Daniel Williams, has developed anonline game where Paul's characters must fight to dissolve theFederal Reserve. The game has 50 different levels one for eachstate in the Union- which Paul's character must complete to achievevictory. Gamers must also beat 13 arch-villains in the game -bosses in video game parlance- each representing one branch officeof the Federal Reserve as they advance through the game. However, maybe the real problem with the U.S. reserve banks is thatthey seek to maintain their own independence.

That is what PaulMcCulley a research fellow at the Global Interdependence Centerthink tank that promotes free trade and past senior partner atPIMCO has claimed. "We must rethink monetary and fiscal policy [in this country]and the mix between them," said McCulley. The doctrine ofcentral bank independence, which has really become a principle offaith, does not always stand up to the test of reality, especiallyas the world continues to change." "The time has come that other agencies, both in the public andprivate sectors while step up to the plate and address theproblems," Erian wrote two weeks ago. He feels other agencieswould be better suited to removing the obstacles blocking economicrecovery.

"Deep in their hearts the [central] banks know thatthey don't have the tools to deal with the challenges that facethem today," he wrote. They don't know how to train workers, improve the mobility orflexibility of the labor market, and they have no influence overthe educational system. "Yet these are the challenges that weare must face if we wish to prevent the situation where the curseof unemployment becomes a permanent structural feature of oureconomy and even more difficult to solve," Erian summed up. It appears that just like in the 1930s, the downfall of the centralbanks today is due to their blind adherence to the economicorthodoxy of the time, which didn't fix the crisis and inpractice helped cause it.

In reality, the purpose of the central bank is to preserve thestatus quo in the financial system at all costs and defend itsstability. However, when the world is standing at the precipice itneeds a driver who can divert the steering wheel left or right andwon't stubbornly stay the course. To be fair, nobody has the kind of challenges that central bankersmust confront today. The central banks find themselves in the eyeof a political storm that isn't directly tied to their mission butmakes it more difficult for them to operate with a free hand. Theywere given an economic crisis that rendered most of the tools intheir possession irrelevant and contravened years of acceptedeconomic theory.

True, some of these bankers bear partial responsibility for theirrole in creating the crisis but at times of economic downturn it istoo easy and tempting to attack central bankers, particularlybecause of their penchant for operating in secrecy. Also to be fair, Ben Bernanke was walloped for "activist"tendencies when he bailed out the financial world by pumping intoit so much liquidity that the Fed's balance sheet ballooned to $3trillion. Bernanke found himself at the center of stridentcontroversy that didn t subside until his announcement of a thirdquantitative easing program (aptly named QE3), despite Republicanslike Texas Governor Rick Perry who distanced himself from the moveand labeled Bernanke's measures as equivalent to treason. Bernankewas damned if he did, damned if he didn't. Over the entire duration of the financial crisis the central bankshave been told to abandon their inveterate conservatism and toimplement extreme measures to contain and extirpate the contagionspreading through the economic system.

The result was a lacklustershowing that mainly served to reveal their limited independencefrom the political establishment. What is the future of the central banks? It will be a busy one,wrote senior Financial Times columnist Martin Wolf: They'reexpected to provide both monetary and fiscal stability andeverything they do will be controversial. Everybody hates bankbailouts, but what's the alternative?.

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